Management Control Systems
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Management Control systems
Expectations..Assumptions The student should be well versed in management principles and perspectives. Must go through management journals and articles to broaden their horizons
Objective To gain knowledge, insights and analytical skills related to how a firm’s managers go about designing, implementing and using planning & control systems to implement & realise firm’s strategy
Our Strategy…to follow Interactive Participative Self
Learning Connect with Experience Industry parallels Facilitation…. (no teaching !!!!!) Triggered learning's Presentations Projects
Management Control systems
Introduction to Management Control systems
Nature of Management Control Systems
System is a prescribed & usually repetitious way of carrying an activity or set of activities Management control is the process by which managers influence other members of the organisation to implement organisation’s strategies
Management Control System - Activities
Planning Coordination – Communication Evaluation of information Initiate activities, direction Influence people to work towards goals
Elements of Control System
Detector or sensor Observed information about what is happening Assessor Comparison with Standard Effector (feedback) Behavior altering communication, if needed
Importance of Control Systems
Nature of decisions Resources – quality,quantity, availability Decision at higher level .. Execution down the level Decisions are systematic and rhythmic Strategies, core values, mission-vision, procedures, policies Strategy implementation tool Needs framework, infrastructure, control to implement Behavioral Considerations
Characteristics of good Management Control System
Future oriented Clear objective Minimum control losses
Strategy formulation Strategy formulation is the process of deciding on the goals & strategies for attaining those goals
Strategy Formulation – Management Control – Task Control Activity Result - Output Strategy formulation Management Control Task control
Goals, Strategies, Policies Implementation strategies Efficient & effective performance Of individual task
Strategy formulation
Management Control
Basic & Applied Research
Control Research Execute & Monitor Individual Research Organisation Projects
Improve Current Ratio
Inventory/ Receivables Control
Task control
- No. of months RM inventory - Slow/non moving inventory - Credit period scrutiny
Behaviour in Organisation
Goals & Goal Congruence
Goals Goal Congruence “Goal Congruence means that, as far as is feasible, the goals of organisation’s individual members should be consistent with goals of organisation itself”
Goal Congruence
Factors impacting Internal • Cultural • Management Style • Informal Organisation • Perception & Communication External – Work ethics, Set of attitudes
Types of Management Control Systems
Formal Control Systems Input Control Process Control Output Control Informal Control Systems Self Control Social Controls Cultural Controls
Subsystems and components of MCS
Formal Control Process • Formal Planning Process • Formal Reporting Process Informal Control Process Informal communication
Use of Information Technology
Impact Speed Accuracy Efficiency Integration Real-time Common data base
Designing Control Process & Management Controls
Designing Management Control System – Cybernetic Approach
To steer Cybernetics is the interdisciplinary study of the structure of complex systems, especially communication processes, control mechanisms and feedback principles Cybernetics is closely related to control theory and systems theory An art/study of or related to governing, controlling processes and communication Deals with Complex Structures Mutual interactions Evolvalability of structure
Designing Management Control System - Contingency Approach
No one best way to manage & to be effective, planning, organizing, leading & controlling must be tailored to particular circumstances faced by an organization Questions such as – What is the right thing to do? A functional or divisional structure? Wide or narrow spans of management? Tall or flat organizational structures? Simple or complex control and coordination mechanisms? Should we be centralized or decentralized? Should we use task or people oriented leadership styles? What motivational approaches and incentive programs should be used? Contingency approach (situational approach) to
Designing Management Control System - Contingency Approach….
Right thing to do depends on a Critical environmental changes Internal contingencies Technology Organisation structure
Designing Management Control System Management Control process approach
Meaning of Strategy
In the military, strategy often refers to maneuvering troops into position before the enemy is actually engaged. In this sense, strategy refers to the deployment of troops A strategy is a long term plan of action designed to achieve a particular goal, most often “winning”
Meaning of Business Strategy The way in which an organization uses its knowledge and other resources to achieve its economic purpose
Strategy & Control system
Corporate strategy Business Unit strategy Functional strategy Mission & Vision Competitive advantage Differentiation Focus
MISSION…
An organization’s MISSION Reflects management’s vision of what firm seeks to do & become Provides clear view of what firm is trying to accomplish for its customers Indicates intent to stake out a particular business position
MISSION …..
Reason why Organisation exists Sense of purpose Social Reasoning Corporate Philosophy Identity, Character, Image of Organisation
SAMPLE MISSION STATEMENTS
RENT-A-CAR…..Our business is renting cars. Our mission is total customer satisfaction. WAL-MART…..To offer all of the fine customers in our territories all of their household needs in a manner in which they continue to think of us fondly
Levels of Organizational Strategy Corporate Strategy Business Strategy Functional Strategy
Corporate Head Office Divisions/ Segments Manufacturing
Divisions/ Segments Manufacturing
Marketing
Marketing
Research
Research Finance
Finance
Control Process Hierarchy
Communication structures Reporting structures
Key Success Variables & Measures of Performance
Key Success variables
Identifying key variables Input variables • Raw material Availability • Raw material quality • Raw material Cost Production Variables • Capacity Utilisation • Loss/Wastage/Yield • Quality Control • Maintenance/Downtime/Breakdowns • Costs • Delivery
Key Success variables…..
Marketing Variables • Order book position • Market share • Institutional sales Management Variables – performance indicators • Asset Turnover • Inventory Turnover • ROI • EVA
Sources of Key variables
Industry Characteristics Environmental factors Political Global impact Competitive strategy Stakeholders Functional Organisation structure
Expectations..Assumptions The student should be well versed in management principles and perspectives. Must go through management journals and articles to broaden their horizons
Objective To gain knowledge, insights and analytical skills related to how a firm’s managers go about designing, implementing and using planning & control systems to implement & realise firm’s strategy
Our Strategy…to follow Interactive Participative Self
Learning Connect with Experience Industry parallels Facilitation…. (no teaching !!!!!) Triggered learning's Presentations Projects
Management Control systems
Introduction to Management Control systems
Nature of Management Control Systems
System is a prescribed & usually repetitious way of carrying an activity or set of activities Management control is the process by which managers influence other members of the organisation to implement organisation’s strategies
Management Control System - Activities
Planning Coordination – Communication Evaluation of information Initiate activities, direction Influence people to work towards goals
Elements of Control System
Detector or sensor Observed information about what is happening Assessor Comparison with Standard Effector (feedback) Behavior altering communication, if needed
Importance of Control Systems
Nature of decisions Resources – quality,quantity, availability Decision at higher level .. Execution down the level Decisions are systematic and rhythmic Strategies, core values, mission-vision, procedures, policies Strategy implementation tool Needs framework, infrastructure, control to implement Behavioral Considerations
Characteristics of good Management Control System
Future oriented Clear objective Minimum control losses
Strategy formulation Strategy formulation is the process of deciding on the goals & strategies for attaining those goals
Strategy Formulation – Management Control – Task Control Activity Result - Output Strategy formulation Management Control Task control
Goals, Strategies, Policies Implementation strategies Efficient & effective performance Of individual task
Strategy formulation
Management Control
Basic & Applied Research
Control Research Execute & Monitor Individual Research Organisation Projects
Improve Current Ratio
Inventory/ Receivables Control
Task control
- No. of months RM inventory - Slow/non moving inventory - Credit period scrutiny
Behaviour in Organisation
Goals & Goal Congruence
Goals Goal Congruence “Goal Congruence means that, as far as is feasible, the goals of organisation’s individual members should be consistent with goals of organisation itself”
Goal Congruence
Factors impacting Internal • Cultural • Management Style • Informal Organisation • Perception & Communication External – Work ethics, Set of attitudes
Types of Management Control Systems
Formal Control Systems Input Control Process Control Output Control Informal Control Systems Self Control Social Controls Cultural Controls
Subsystems and components of MCS
Formal Control Process • Formal Planning Process • Formal Reporting Process Informal Control Process Informal communication
Use of Information Technology
Impact Speed Accuracy Efficiency Integration Real-time Common data base
Designing Control Process & Management Controls
Designing Management Control System – Cybernetic Approach
To steer Cybernetics is the interdisciplinary study of the structure of complex systems, especially communication processes, control mechanisms and feedback principles Cybernetics is closely related to control theory and systems theory An art/study of or related to governing, controlling processes and communication Deals with Complex Structures Mutual interactions Evolvalability of structure
Designing Management Control System - Contingency Approach
No one best way to manage & to be effective, planning, organizing, leading & controlling must be tailored to particular circumstances faced by an organization Questions such as – What is the right thing to do? A functional or divisional structure? Wide or narrow spans of management? Tall or flat organizational structures? Simple or complex control and coordination mechanisms? Should we be centralized or decentralized? Should we use task or people oriented leadership styles? What motivational approaches and incentive programs should be used? Contingency approach (situational approach) to
Designing Management Control System - Contingency Approach….
Right thing to do depends on a Critical environmental changes Internal contingencies Technology Organisation structure
Designing Management Control System Management Control process approach
Meaning of Strategy
In the military, strategy often refers to maneuvering troops into position before the enemy is actually engaged. In this sense, strategy refers to the deployment of troops A strategy is a long term plan of action designed to achieve a particular goal, most often “winning”
Meaning of Business Strategy The way in which an organization uses its knowledge and other resources to achieve its economic purpose
Strategy & Control system
Corporate strategy Business Unit strategy Functional strategy Mission & Vision Competitive advantage Differentiation Focus
MISSION…
An organization’s MISSION Reflects management’s vision of what firm seeks to do & become Provides clear view of what firm is trying to accomplish for its customers Indicates intent to stake out a particular business position
MISSION …..
Reason why Organisation exists Sense of purpose Social Reasoning Corporate Philosophy Identity, Character, Image of Organisation
SAMPLE MISSION STATEMENTS
RENT-A-CAR…..Our business is renting cars. Our mission is total customer satisfaction. WAL-MART…..To offer all of the fine customers in our territories all of their household needs in a manner in which they continue to think of us fondly
Levels of Organizational Strategy Corporate Strategy Business Strategy Functional Strategy
Corporate Head Office Divisions/ Segments Manufacturing
Divisions/ Segments Manufacturing
Marketing
Marketing
Research
Research Finance
Finance
Control Process Hierarchy
Communication structures Reporting structures
Key Success Variables & Measures of Performance
Key Success variables
Identifying key variables Input variables • Raw material Availability • Raw material quality • Raw material Cost Production Variables • Capacity Utilisation • Loss/Wastage/Yield • Quality Control • Maintenance/Downtime/Breakdowns • Costs • Delivery
Key Success variables…..
Marketing Variables • Order book position • Market share • Institutional sales Management Variables – performance indicators • Asset Turnover • Inventory Turnover • ROI • EVA
Sources of Key variables
Industry Characteristics Environmental factors Political Global impact Competitive strategy Stakeholders Functional Organisation structure
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